Why Is TLT Outperforming the S&P 500 in 2025?

As we approach the midpoint of 2025, investors are wondering why the iShares 20+ Year Treasury Bond ETF (TLT) has been outperforming the S&P 500. The TLT, which tracks U.S. Treasury bonds with remaining maturities greater than 20 years, has seen a modest 1% gain so far this year, while the broad market has risen by 3.62%. Over the past year, the fund has fallen by 7.54%, but its long-term performance has been even worse, with a nearly 40% decline over the past five years. Despite these losses, the TLT remains a popular fund, with over $53.465 billion in net assets.



There are two primary reasons why the TLT is drawing interest from investors:

1. Weary Investors Seek Safe Havens with Strong Yields: Since the start of 2025, Treasury rates have been luring investors back into the mix. The 20-year U.S. Treasury bond, in particular, has been flirting with 5% for several weeks. Currently at 4.86%, the long-dated bond is offering investors a safe haven amid the equity market's lack of clarity under President Trump and ongoing volatility in tech and AI-leveraged stocks. The TLT's dividend, which currently yields 4.27%, outpaces consumer price increases by more than 47%, making it an attractive option for income-oriented investors.
2. Market Volatility and Overvaluation: The TLT's outperformance can also be linked to the ongoing market volatility and perceived overvaluation of equities. The S&P 500's price-to-earnings (P/E) ratio is currently 28.92, which is significantly higher than the historical average of 17.92. This overvaluation, combined with the average bull market duration of around 2.8 years, suggests that stocks may be running out of fuel. As a result, investors are turning to defensive positions like the TLT to protect their portfolios from potential market corrections. The TLT has seen inflows of $976 million since the start of 2025, indicating that investors are seeking value in longer-dated bonds as yields hover in a desirable range.

In conclusion, the TLT's outperformance compared to the S&P 500 in 2025 can be attributed to investors seeking safe havens with strong yields and market volatility driving inflows into the fund. As market volatility continues, defensive positions offering strong yields are increasingly attractive to weary investors. The TLT's dividend, currently yielding 4.27%, is a significant draw for income-oriented investors, as it outpaces consumer price increases by more than 47%. The fund's appeal lies in its ability to provide a safe haven for investors seeking to lower the volatility of their portfolios while still generating income.